Standing Committee A

[Mrs. Joan Humblein the Chair]

Charitable incorporated organisations

Question proposed [this day]: That the clause stand part of the Bill.

Alun Michael: Mrs. Humble, may I say what a pleasure it is to sit under your discipline this afternoon for the second part of my speech?
I was explaining that I have deep reservations about schedule 7. I hope that my hon. Friend the Minister will take away my reservations and consider amending the Bill on Report. My objection is that the schedule incorporates a pointless acronym into law. It not only incorporates it but repeats it, so that in my view those who wrote this part of the Bill are guilty of a serial offence.
It is a dreadful habit of Whitehall to turn everything into acronyms. The issue is important, because language and communication are important. An acronym can do two things: it can damage communication because the acronym label is not comprehensible and does not mean anything, and it can exclude those who are not anoraks.
Anyone who has served, as I have, at DEFRA and DTI will know that it is possible to have whole sentences that contain few words and little meaning because acronyms are used all the time. When I was given responsibility for chemicals, it took me a little time to adjust to the fact that the CIA that was referred to in the Department was the Chemical Industries Association. I think it is right to say that the Federation of British Industries changed its name to the Confederation of British Industry to escape association with an American institution. It is certainly not always clear whether one is talking about the Food Standards Agency or the Financial Services Authority when the initials FSA are used. The tin lid was put on all that for me when I heard officials describe the rural affairs forum as “the RAF”. I made the point at that stage that although the rural affairs forum was an important way of communicating with rural communities in England, we did not intend to bomb anyone into submission in the course of our deliberations.
In this Bill, which is in other ways such an excellent piece of legislation, we have the dreadful acronym habit of Whitehall being incorporated into primary legislation. It is an absolute outrage. I hope that my hon. Friend will accept my point and cleanse the Bill with amendments on Report.
Exclusive language is damaging, and we now have the initials used in schedule 7. I had something of a battle to persuade officials that community interest companies should not be called CICs, because the word CIC does not communicate anything whereas the title community interest company tells one exactly what it is. It would be simple for my hon. Friend to introduce an amendment into paragraph 1 of schedule 7, in page 114, line 30, to delete “a ‘CIO’” and to insert “an incorporated charity”. We would then all know what we meant by the term, and the label on the bottle would be clear. In the age of the computer, it cannot be claimed that typing the term “an incorporated charity” is onerous compared with using initials.
I do not want to delay the Committee on this point, but I do not believe that it is trivial. The Government have done a good job in making available different models, such as the community interest company and the incorporated charity. Those two options are available for organisations that want to pursue worthy purposes but want the protection of incorporation, apart from industrial and provident societies and the other options. To have that range of options and refer to them simply so that people can make decisions based on the best model for them to deliver the value-led outcomes that they want to achieve will be a major step forward. I hope we can take that step forward with clarity, and not with an acronym settled into primary legislation. I regard that as an outrageous proposition and the one defect in an otherwise excellent Bill. I hope that my hon. Friend the Minister will have sympathy for the fact that, as a Welshman, I am trying to protect the English language from this outrageous intrusion.

Martin Horwood: It is nice to see you in the Chair presiding over us, Mrs. Humble. I have some sympathy for what the right hon. Member for Cardiff, South and Penarth (Alun Michael) said and was rather looking forward to his pronouncing the words in the proposed new section 69C(4)(a) of the Charities Act 1993, as I suspect that he is the only member of the Committee who could do so.
The right hon. Member might be rather exaggerating the threat contained in schedule 7, because although it provides for added flexibility in exactly which incorporated status a charity might adopt—I hope that every member of the Committee would welcome that—as I read it, it does not oblige them to use the letters CIO. In fact, the precedent is for limited company status, which many charities—certainly all the major ones—have adopted without having to use acronyms such as plc, Ltd or anything else in their notepaper or elsewhere. That has not proved much of a limitation, so although I share the right hon. Gentleman’s dislike for acronyms where clear English will do, the injunction to charities that adopt CIO status to call themselves charitable incorporated organisations rather than CIOs should remain.

Peter Bottomley: I agree with the right hon. Member for Cardiff, South and Penarth. We could take the polysyllabic sludge of “charitable incorporated organisations” and say that we do not need the word “organisation”, because it is implied by “incorporated”, and that we should substitute one syllable in “charitable” to make it “charity”. What is proposed is absolutely straightforward—Dorothy Sayers would have approved of it—so I hope that the Minister will take the wording away and bring it back changed.

Edward Miliband: The passion of my right hon. Friend the Member for Cardiff, South and Penarth was clear for us all to see. If our proceedings were being covered by “Today in Parliament” or “Yesterday in Parliament”, he would deserve to get on with the speech that he delivered, which was entertaining and informative.
There are good reasons to be sympathetic to my right hon. Friend’s view. The Government come up with lots of incomprehensible acronyms and other phrases that mean nothing to members of the public. However, “incorporated charity” does not work, because there are other non-CIO forms of incorporated charity, namely the industrial and provident societies, and friendly societies, which are incorporated charities—to use the term of art—but will not necessarily apply for the status that we currently call CIO.
I am tempted to say that anyone with good ideas should send them on a postcard to my right hon. Friend over the summer. We have been aware of the problem, but we have not found a better alternative. However, Members of Parliament get a long summer break, and although I do not promise to devote the whole of mine to thinking of an alternative formulation, we will apply our minds to see whether something can be done about the dreaded acronyms.

Peter Bottomley: During the summer break, will the Minister also turn his mind to a word that appears right at the beginning of the Bill, which is “institution”, of which I am not sure I have found the definition? I think that I know what it means, but if there is a definition, perhaps the Minister could point it out. “Institution” is an acceptable word, but it would be lovely to know precisely what it means.

Edward Miliband: My list of summer tasks is growing, although in the meantime perhaps the hon. Gentleman can tell us what he thinks the word means.

Peter Bottomley: I think that I will not do so.

Edward Miliband: I gather that “institution” is defined in clause 76(5), which says:
“In this Act ‘institution’ means an institution whether incorporated or not, and includes a trust or undertaking.”
I hope that that satisfies the hon. Gentleman.

Peter Bottomley: Does that also include all the other organisations that would otherwise be included in the incorporated charities that the Minister has talked about?

Edward Miliband: I am glad that the hon. Gentleman asked that question. I think that the answer is yes.

Alun Michael: In view of the Minister’s generous undertaking to think about the matter during the summer, I can respond only by offering to enter into correspondence with him to see if we can find a solution and protect the English language. I am grateful to him for his response and I shall not press the clause to a Division.

Question put and agreed to.

Clause 34 ordered to stand part of the Bill.

Schedule 7

Charitable incorporated organisations

Andrew Turner: I beg to move amendment No. 170, page 114, line 32, at end insert ‘, with either—
(a) charity trustees only, or
(b) charity trustees and one or more members.’.

Joan Humble: With this it will be convenient to discuss the following amendments: No. 112, page 115, line 1, leave out ‘shall have one or more’ and insert ‘need not have any’.
No. 113, page 115, line 2, after ‘members’ insert ‘(if there is a membership)’.
No. 114, page 115, line 11, after ‘members’ insert ‘(if there is a membership)’.
No. 115, page 115, line 14, after ‘membership’ insert ‘(if there is a membership)’.
No. 116, page 129, line 14, after ‘members’ insert
‘(if there is a membership and of the charity trustees if there is no membership)’.
No. 117, page 129, line 22, after ‘meeting’ insert ‘or, as applicable, charity trustees’ meeting’.
No. 118, page 129, line 25, after ‘members’ insert ‘or, as applicable, charity trustees’.
No. 119, page 129, line 26, after ‘meeting’ insert ‘or, as applicable, charity trustees’ meeting’.
No. 120, page 129, line 28, leave out ‘general’.
No. 121, page 129, line 29, leave out ‘general’.

Andrew Turner: It is a great pleasure to see you in the Chair this afternoon, Mrs. Humble. Once again, the sun is shining and everyone is happy. They will be happier still to know that I shall not go into great detail about amendments Nos. 112 to 121. I had a word with the Parliamentary Secretary over lunch and he persuaded me that the amendment was not necessary because it was not possible to have an incorporated organisation such as a charitable incorporated organisation—in deference to the right hon. Member for Cardiff, South and Penarth—that did not have members. I hope that he will say a few words in explanation of that position, as a result of which I shall not press the amendment.

Edward Miliband: This is an incredibly complicated issue and members of the Committee will be pleased to know that I shall not read out the 20-minute speech that I had prepared on the subject. Suffice it to say the problem is that, under English company law, there is not a company that does not consist of members. Trustees control and manage the charity under a CIO and members essentially form the charitable incorporated organisation. Although there is some sympathy with the intention behind the hon. Gentleman’s amendments, it is difficult—as our discussion made clear—to achieve what he seeks. There needs to be both trustees and members, although it is not particularly elegant in law. In light of the undertakings, I am happy to continue to discuss matters with him and any other representatives that he considers have important views on the matter, so I hope that he is willing to withdraw the amendment.

Peter Bottomley: I suspect that my hon. Friend the Member for Isle of Wight (Mr. Turner) is right to have understood whatever was said outside the Committee.
I want to raise an issue about the Charity Commission. Let us suppose that an incorporated charity had trustees with, say, two members and those members died. Would it be open to the Charity Commission to appoint people to be members so that the charity could continue or would the charity be dissolved? Again, the Minister might want to respond to such a question by correspondence. Such a thing is not likely to happen, but we always need to know what would happen in those circumstances.

Edward Miliband: That is an important question. What happens in such circumstances would be governed by the constitution of the charitable incorporated organisation. It would need to appoint new individuals to the organisation in the usual way.

Andrew Turner: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Andrew Turner: I beg to move amendment No. 166, in schedule 7, page 115, line 5, at end insert—
‘(7) No person under the age of 18 years shall be appointed as a charity trustee of a CIO.’.

Joan Humble: With this it will be convenient to discuss the following amendments: No. 167, in schedule 7, page 115, line 10, at end insert—
‘(ca) that its assets cannot be distributed to its members in their capacity as members, and’.
No. 168, in schedule 7, page 115, line 18, at end insert—
‘(ba) containing restrictions on the material benefits that the charity trustees of the CIO can derive from the CIO, and’.
No. 169, in schedule 7, page 115, line 35, at end insert—
‘(7) In subsection (2)(ba), “material benefits” means benefits which may or may not be financial, but which have a monetary value.’.

Andrew Turner: Those same conversations over lunch revealed that the proposals in amendments Nos. 167 to 169 are a part of general charity law that does not need to be repeated. However, amendment No. 166 poses something of a quandary.
As Committee members know from the previous debate, a charitable incorporated organisation has both trustees and members, and those members are akin to members of a company. In company law, a member of a company can be of any age, although I understand that the Company Law Reform Bill will change the minimum age for membership of a company from birth to 16. However, the minimum age at which a person can be a trustee of a trust, let alone a charitable trust, is 18. Amendment No. 166 proposes that 18 should be the minimum age for being a trustee of a charitable incorporated organisation. There is some question about whether that is appropriate, given that a charitable incorporated organisation is a corporation as well as a charity. However, I hope that the Minister will take the issue away and think about it over the recess. Perhaps he will come up with a proposal on Report that commands general confidence.

Edward Miliband: The hon. Gentleman has, conveniently and usefully, drawn a genuine dilemma to our attention. Since the Bill was drafted—many moons ago, it seems now—the Company Law Reform Bill has stipulated that directors of companies can be as young as 16. However, in charity law, trustees must be 18. That poses a dilemma for us all. CIOs are charities rooted in some of the benefits of company law, but their reform lies in charity law. We shall take the issue away, think about it and report back to hon. Members.

James Duddridge: As the Minister knows, I raised in the House the issue of people with learning disabilities acting as trustees. I should like to link that with what we are discussing. Is there not a rationale for having different categories of trustees, and not only allowing people aged 16 to be trustees but introducing a category between a member and a trustee, particularly for charities that represent young people?
Helen Goodman (Bishop Auckland) (Lab) rose—

Edward Miliband: I give way to my hon. Friend the Member for Bishop Auckland (Helen Goodman).

Helen Goodman: This issue is highly problematic for charities working with young people which want young people to have a voice in how they are run. However, the case in respect of young people is different from that of people with learning disabilities. It is possible to insert people in advisory panels and management committees at a level below that of the trustee board, to avoid giving them the full legal responsibility of trusteeship. I just offer that thought.

Edward Miliband: I am grateful to my hon. Friend.

Robert Flello: I ask my hon. Friend the Parliamentary Secretary to bear in mind that the single biggest group of people involved in volunteering activities are aged between 16 and 24. To my mind, to exclude them seems to move away from natural justice.

Edward Miliband: I may cause some alarm among my officials by saying this, but perhaps my hon. Friends are giving me the idea that we should strike a blow for 16 to 18-year-olds and move more generally towards 16-year-olds being eligible to be trustees. I throw that out not as a proposal, but more as a thought.

Alun Michael: The way that my hon. Friend is engaging with the issue and responding on his feet to hon. Members’ comments is encouraging. I know from my previous incarnation that one of the reasons for the age change in the Company Law Reform Bill and accepting that we should choose the age of 16 was that we wanted to encourage a spirit enterprise and responsibility among young people. However, enterprise can be delivered through charitable organisations as well, and we also want to promote the spirit of charity. Perhaps we might consider a safeguard that protects the charitable institution but allows young people a genuine vehicle through which to engage in such activities. I encourage my hon. Friend to explore that.

Edward Miliband: I am grateful to my right hon. Friend for pointing that out. I warm to the idea the more we discuss it.

Martin Horwood: I encourage the Minister to warm to it some more. I am not sure that many safeguards are needed beyond those that already exist in the process of becoming a trustee in the first place, either by election or by peer group acceptance. I encourage him to move from a thought to a proposal.

Edward Miliband: I am grateful for the degree of consensus that we seem to be developing on the issue. I do not know whether Conservative Front-Bench Members share that enthusiasm.
I am advised that young people and others can participate through advisory councils without becoming legal trustees. Perhaps that answers the point made by the hon. Member for Rochford and Southend, East (James Duddridge), but it does not answer the question whether 18 or 16 is the right age for trustees, and whether there is not a case for bringing the Bill into line with the precedent set by the Company Law Reform Bill. As the Committee has developed that thought collectively, I shall take it away and think about it during the summer. I hope that the hon. Member for Isle of Wight will withdraw his amendment.

Andrew Turner: It is important to place on record that the Company Law Reform Bill has raised the age at which one can become a trustee, thereby—to follow the logic of the right hon. Member for Cardiff, South and Penarth—excluding under-16s from participation in enterprise rather than enabling those between 16 and 18 to participate.
I suspect that a compromise will be achieved, but I have concerns about the consequences of such a compromise on the other responsibilities of people aged 16 to 18. One of the responsibilities of trustees is personal liability, which might not be appropriate for those aged 16 to 18.

Peter Bottomley: I had planned to quote from this later on, but “Responsibilities of charity trustees: a summary”, a document published by the Charity Commission dated 18 January 2002, says:
“You cannot be a charity trustee if you are under 18 years of age (unless the charity is a registered company)”.
It is therefore possible to be a charity trustee under the age of 18 anyway, assuming that the Charity Commission’s guidance is accurate.

Andrew Turner: That information was not available to me a couple of minutes ago. In the circumstances, I am grateful to the Minister for agreeing to consider the subject. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Andrew Turner: I beg to move amendment No. 36, in schedule 7, page 116, leave out inserted section 69D.

Joan Humble: With this it will be convenient to discuss amendment No. 129, in schedule 7, page 116, line 18, at end insert—
‘(7) No CIO shall describe itself as a charity or its Welsh equivalent.’.

Andrew Turner: Amendment No. 129 is unnecessary, so we are making considerable progress on the schedule, but I think that amendment No. 36 is necessary. Proposed new section 69D of the 1993 Act will create no fewer than 37 new criminal offences. Subsection (1) will create eight offences affecting various people, including
“A charity trustee...or a person on the CIO’s behalf who issues or authorises the issue of any document”—
tiddley pom, tiddley pom. There are other measures as well, making eight offences. We then go on to subsection (2), in which there is the opportunity for another 28 offences to be created. Subsection (3) creates one further offence. The commission has the power to warn, advise or remove anyone who does any of those things anyway.
I was struck by the findings of the Joint Committee, which states in its report that:
“Considerable concern was expressed about the possible imposition”
—by clause 28, although it applies just as well to new section 69D—
“of a criminal penalty on a trustee...Comments varied from ‘unacceptable’ at one end of the scale to ‘draconian’ at the other...Bircham Dyson Bell considered that criminal sanctions would introduce a further deterrent to volunteering and make it more difficult to recruit trustees...The Committee are concerned about a blanket imposition of a criminal penalty for breach of trust...We conclude that cases should only be pursued where a trustee acts dishonestly...We consider that the imposition of a criminal penalty would be counterproductive and recommend that the Bill should impose a civil penalty without leaving someone with the stigma of a criminal conviction.”
A huge number of offences have been created in a huge number of areas in a vast amount of legislation in recent years. The Charities Bill should not be another vehicle for the creation of such offences. I agree with the Joint Committee that people are put off becoming trustees if they fear that a slip can lead to criminality or even prosecution. They may succeed in demonstrating that it was a slip and that they are not guilty, but they face the heartache, distress and disruption of their lives that results from facing a potential criminal charge. That is not something that we should do as lightly as it appears to have been done in the proposed section.

Martin Horwood: I confess that I am slightly puzzled by the amendment. The raft of new offences described by the hon. Gentleman are merely the equivalents for CIOs of parallel offences for companies. Any charity that is moving from company to CIO status will not be subject to more offences, risk of heartache, distress or other problems induced by the risk of criminality because they were liable for those very same, or parallel, offences under company law. The only possible circumstance in which the hon. Gentleman’s concerns might be relevant is one in which a charity that was not previously a company applies for CIO status. However, it is merely being saved the more onerous burden of company law. Although I am sure that the amendment is well intentioned, it does not seem to be justified and interferes with the CIO status as a less burdensome alternative to company status.
The hon. Gentleman did not mention amendment No.129, which is grouped with amendment No. 36.

Andrew Turner: I said that it was unnecessary.

Martin Horwood: In that case, I will sit down.

Peter Bottomley: When the Minister responds, will he explain what the word “body” means? It appears in this subsection.

Edward Miliband: No, is the answer to that, but I will endeavour to do so in due course.
Let me deal with the substantive points made by the hon. Member for Isle of Wight. If I may so, the hon. Member for Cheltenham spoke particularly eloquently in his explanation—more eloquently that I could. The new section replicates for charitable incorporated organisations offences that exist for charities that register under company law. The hon. Gentleman talked eloquently about the risks that people might fear, but I assure him that we are simply reproducing sanctions that already exist for charities under company law. Even for charities section 5(5) of the 1993 Act already provides that an offence regarding the signing of a document is a level 3 offence, which is the same as that under proposed new section 69D of that Act.
Although I understand what the hon. Gentleman is getting at, I assure him that a new set of draconian powers is not being taken. The provision simply reproduces the proportionate and sensible offences that already exist under current law in return for the duties and privileges of being connected with a charity.

Andrew Turner: I cannot say that I am satisfied with that answer. My argument was well set out in the quotation from the Joint Committee’s report. It is hoped that many charitable organisations that are currently unincorporated will transfer and become CIOs and that some companies may become CIOs. That may impose onerous responsibilities on the trustees of charities. I have no doubt that they already have onerous responsibilities, but that is no excuse for perpetuating them. We ought to be considering how to make the lives of trustees easier, not more difficult.
I did not find an answer to the point that the Charity Commission can intervene if a trustee or a charity acts unlawfully.

Martin Horwood: I have great respect for Bircham Dyson Bell, which is associated with Fight for Sight, a charity of which I am a trustee. Perhaps the hon. Gentleman’s interpretation of its opinions is still a bit wide of the mark. For instance, if the provision did not exist, what would the hon. Gentleman suggest should happen to an organisation that pretends to have CIO status? It seems that it would escape sanction.

Andrew Turner: If an organisation misrepresents itself, presumably it does so for a purpose. Usually, that purpose is to obtain some pecuniary advantage; it is not done entirely by accident, and if it is, the organisation is unlikely to be prosecuted. We have to look behind the action.
On the whole, the problem is not the trustees. In the hon. Gentleman’s example, the problem is that the people concerned are not trustees, or they are trustees of an organisation that is not a CIO. If a charity has not become a CIO, the commission will be able to intervene to correct it; and if it is not a charity but it is representing itself as one, the fact that it is likely to have an ulterior motive can easily be demonstrated.
I understand why the Minister does not wish to accept the amendment. The provision is a continuation of existing regulation, and some might describe it as over-regulation. It underlines the need to be a little more sensitive to the needs of lay people who become trustees.
If it is the will of the Committee, I shall not press the amendment to a Division, but I believe that we should consider every opportunity to deregulate and encourage people to take on such responsibilities. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Andrew Turner: I beg to move amendment No. 37, in schedule 7, page 117, line 32, at end insert
‘and
(d) which shall be an organisation having limited liability and which shall not be subject to the provisions of the Companies Act 1985.’.

Joan Humble: With this it will be convenient to discuss the following amendments: No. 123, in schedule 7, page 117, line 33, at beginning insert
‘Subject to subsection (3B) below’.
No. 38, in schedule 7, page 117, line 36, at end insert—
‘(3A) Any liability of the applicant entered into in pursuance of the charitable purpose of the CIO shall by virtue of this subsection become a liability of the CIO.
(3B) Any liability of a charity which becomes a CIO shall by virtue of this subsection become a liability of the CIO.’.
No. 124, in schedule 7, page 117, line 36, at end insert
‘, subject to any liabilities previously incurred in relation to that property.
‘(3A) Where—
(a) the applicants in subsection (3) are the charity trustees of an unincorporated charity whose purpose are substantially the same as those of the proposed CIO; and
(b) the unincorporated charity has passed a valid resolution to become a CIO
registration of the CIO has the effect of converting the unincorporated charity into a CIO.
(3B) Where an unincorporated charity converting under subsections (3) and (3A) holds permanent endowment, registration of the CIO has the effect of appointing the CIO as corporate trustee of the permanent endowment.’.
No. 39, in schedule 7, page 120, line 35, at end insert—
‘(6A) Any asset or liability of the converting company or registered society shall by virtue of subsection (4) transfer to the CIO.’.
No. 29, in schedule 7, page 123, line 39, at end insert 
‘or at the expiration of six months from receipt by the Charity Commission of the resolution.’.

Andrew Turner: This is another group of amendments that have benefited from our lunch hour. We did not get anything to eat, but we made some progress. It is fair to say that we established that amendments Nos. 37 and 29 are not important enough for me to press to a Division. However, amendments Nos. 38 and 39, and perhaps Nos. 123 and 124 because they form part of the same general argument, illuminate a problem.
When an unincorporated organisation sets out to become a CIO, the process is usually that the CIO is established. The unincorporated organisation then hands over its assets, but what happens to its liabilities? Liabilities can be handed over only with the approval of the creditor. It is unlikely that the creditor would agree to transfer a debt from an unincorporated organisation, the trustees of which are individually liable for the full sum, to a body that has limited liability. We are left with the original charity with its liabilities, but no assets and the CIO with its assets, but no liabilities and no way of moving the liabilities to the CIO. That will not encourage bodies to transfer from being unincorporated organisations to being CIOs. Amendments Nos. 38, 39, 123 and 124 attempt to deal with the issue in different ways and I invite the Minister to look at the problem to see if he can come up with a solution.

Edward Miliband: The hon. Gentleman has raised a point of genuine difficulty because the Government are keen to encourage the use of the CIO and that partly will be about unincorporated charities moving to take advantage of the limited liability and the other positive aspects of becoming a CIO. However, there is no question that we face the barrier that the hon. Gentleman set out rather clearly.
There is provision in proposed new section 69O to make the process of conversion as easy as possible but, as the hon. Gentleman says, it requires the setting up of a new organisation, the termination of the existing organisation and a transfer of the assets and liabilities, and that depends at least on authorisation from the people to whom those liabilities are owed. It is a problem to which a solution has not been found so far in the long and winding road under the Bill. Again, without wishing to ruin my summer completely or that of my officials who are working on the Bill, we shall keep looking at such matters and will respond positively to any ingenious suggestions that are made. With that assurance, I hope that the hon. Gentleman will withdraw the amendment.

Andrew Turner: I am grateful for that reassurance. Indeed, I am grateful for the assistance of the Charity Law Association in bringing forward some of the problems. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 7 agreed to.

Clause 35 ordered to stand part of the Bill.

Clause 36

Remuneration of trustees etc. providing services to charity

Andrew Turner: I beg to move amendment No. 30, in clause 36, page 34, line 24, after ‘out’, insert ‘in advance’.

Joan Humble: With this it will be convenient to discuss the following amendments: No. 31, in clause 36, page 35, line 10, leave out ‘or under a contract of employment,’.
No. 32, in clause 36, page 35, line 46, at end insert—
‘(ba) a person having a relationship with a trustee akin to that of a spouse or civil partner with a trustee or any person falling within paragraph (a);’.
No. 33, in clause 36, page 36, line 2, after ‘(b), insert ‘or (bb)’.
No. 34, in clause 36, page 36, line 5, leave out ‘, (b) or’ and insert ‘to’.

Andrew Turner: This is a series of short amendments to clarify the position of paying trustees. They have special responsibility to safeguard a charity’s assets. I welcome the statement by the noble Lord Bassam in Grand Committee in another place. He confirmed that the Government were
“trying to preserve the essence of the voluntary principle of trusteeship”
and he said that the conditions of payment to a trustee were
“designed to ensure that it is proportionate, protects against conflicts of interest and is in the best interests of the charity.”—[Official Report, House of Lords, 16 March 2005; Vol. 670, c. GC515.]
Amendment No. 30 would simply require that any agreement about payment should be made “in advance” of that payment being made or, indeed, the work being undertaken for which the payment might be made. That seems a sensible principle and is, I believe, one of the proposals of the Joint Committee, at paragraph 259.
Amendment No. 31 would exclude charities from employing their own trustees. It is one thing to have a short-term relationship with a trustee who is perhaps doing a little plumbing for the benefit of the charity; it is another thing entirely to have a trustee as a permanent or, indeed, temporary employee of the charity.
Amendments Nos. 32 to 34 deal with unmarried partners or, as I put it, people in a relationship akin to a marriage or civil partnership. There are now many relationships that are not recognised by law, but which will have an influence that might be perceived as inappropriate when it comes to the appointment of people to do jobs, to work for charities and so on. The amendments are designed to deal with that.

Edward Miliband: The hon. Gentleman was admirably brief; I shall be slightly less brief in trying to answer his questions, but I will be as brief as I can. On amendment No. 30, to clause 36, I understand that there are two aspects to his concern. First, he is worried that there would not be an agreement in place when the payment was made and therefore the agreement would be made retrospectively. Secondly, he is worried that there would not be an agreement in place when the service was provided and the agreement would be made retrospectively—after the service was provided. I think that those are his two concerns.
Let me deal first with the hon. Gentleman’s first concern, which relates to the principle that the agreement needs to be in place before the payment is made. I can certainly reassure him on that point, because clause 36(2) states:
“If conditions A to D are met in relation to remuneration within subsection (1), the person providing the services...is entitled to receive the remuneration out of the funds of the charity.”
Condition A is that there is an agreement set out in writing, so I hope that that avoids the problem that he is getting at, which involves a payment being made and an agreement being agreed post hoc—after the event.
The second worry—which the hon. Gentleman may not have had—is also covered, because the clause refers to an agreement under which the relevant person
“is to provide the services in question”,
which suggests that the agreement has to be made before the services are provided. I hope that that satisfies the hon. Gentleman on that point.
On amendment No. 31, I think that we have the same end in view, but I advise the hon. Gentleman that taking out the words
“or under a contract of employment”
would get charities into precisely the pickle that we do not want to get them into, which is that, under the clause, services can be provided that are contractual services. The words
“or under a contract of employment”
are in this clause, covering the remuneration of trustees providing services, precisely so that it will not be about contracts of employment. I hope that that explanation satisfies the hon. Gentleman.
I assure the hon. Gentleman that his interesting point about cohabiting couples or people is not immediately obvious in the Bill. However, I hope that he will be satisfied on reading new section 73B(6) of the 1993 Act in tandem with paragraph 171(5) of schedule 8 of the Bill, which would add paragraph 2(3) to schedule 5 of the 1993 Act:
“Where two persons of the same sex are not civil partners but live together as if they were, each of them shall be treated for those purposes as the civil partner of the other.”

Andrew Turner: That appears to deal with people of the same sex, but not with people of opposite sexes.

Edward Miliband: That is an interesting point. We would not want to be discriminatory.

Peter Bottomley: While the Minister is looking through his papers, he might discover references to a stepmother and a stepson.

Edward Miliband: I do not believe that it deals with that eventuality. If I endeavour to take this away and scrutinise whether it is about cohabiting partners of opposite sexes, I hope that the hon. Member for Isle of Wight will be satisfied and will ask leave to withdraw the amendment.

Andrew Turner: The Parliamentary Secretary referred earlier in his remarks on amendment No. 30 to something that I fear happens from time to time in voluntary organisations. Sometimes somebody does a piece of work that needs doing and then says, “Hey, you ought to pay me for that!” Voluntary organisations can be run in such an informal way and that can lead to some considerable dispute. It is worse still when such a dispute involves a trustee: first, he will know the other trustees pretty well and, secondly, he is not entitled to the money. That is the point that I was endeavouring to clarify, because I do not think that it is dealt with. Such a situation could be set out in writing subsequently and, therefore, condition A could be met subsequent to the work being done.
I am not sure whether the Minister is inclined to intervene to correct me, but that was my concern. I accept that there is a requirement that the matter should be set out in writing before the payment is made, but is there a requirement for it to be set out in writing before the work is undertaken?
If the Minister has no other light to shed on this matter, I shall withdraw the amendment.

Edward Miliband: I have some light to shed on cohabitation. Let me correct the record on that before I return to the hon. Gentleman’s point. Schedule 5(2)(2) of the 1993 Act is the saviour on this matter, because it says:
“For the purposes of paragraph 1(e) above a person living with another as that person’s husband or wife shall be treated as that person’s spouse.”
I am reading from page 115 of Jean Warburton’s text and commentary, for those hon. Members who wondered. I believe that that schedule also covers cohabitation and children, including a stepchild and an illegitimate child, so there is reassurance on that point.
Returning to the hon. Gentleman’s point about the original amendment, the key part of clause 36(3) defines the condition
“under which the relevant person is to provide the services in question”
regarding the agreement. That suggests that the agreement needs to be in place before the services are provided. I hope that that reassures the hon. Gentleman.

Andrew Turner: It does. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 36 ordered to stand part of the Bill.

Peter Bottomley: In the past some charity trustees have been remunerated. A good example is the Wellcome Foundation, which disposes of very large sums of money and which requires dedicated trustees who can give a great deal of time. When I became chairman of the council of the Church of England Children’s Society some 23 years ago, my predecessor had been remunerated, but a special meeting had been required to allow that. I hope that trustees may have such arrangements made in appropriate circumstances, but that such special circumstances are not very frequent. If people start to believe that there are many situations in which trustees ought to be remunerated, that is an issue to which Parliament should return. I hope that it will be possible to monitor what has happened with reasonable accuracy as part of the five-year review, so that the House can revisit the issue.

Edward Miliband: I agree with the hon. Gentleman: trusteeship is a voluntary activity and trustee status is important and valued by many trustees around the country. There should be an exception in cases of obvious need, but the exception must not become the rule. I hope that there are enough safeguards in the Bill to ensure that that is the case.

Question put and agreed to.

Clause 36 ordered to stand part of the Bill.

Clause 37

Disqualification of trustee receiving remuneration by virtue of section 36

Edward Miliband: I beg to move amendment No. 56, in clause 37, page 37, line 11, leave out ‘(5) to (7)’ and insert ‘(4) to (6)’.
This is a technical amendment. Clause 37 inserts into the 1993 Act new section 73C, which provides for disqualification of trustees who receive remuneration under new section 73A from acting as trustees in relation to the remuneration agreement. The amendment simply corrects the references in subsection (8) which relate to definitions for the purposes of the new section.

Amendment agreed to.

Clause 37, as amended, agreed to.

Clause 38

Power of Commission to relieve trustees, auditors etc. from liability for breach of trust or duty

Andrew Turner: I beg to move amendment No. 28, in clause 38, page 37, line 25, at end insert—
‘(d) a trustee or auditor of a charitable incorporated organisation.’.

Joan Humble: With this it will be convenient to discuss the following amendments:
No. 132, in clause 38, page 38, line 10, at end insert—
‘(7) Any prosecution of a trustee of an unincorporated charitable trust under section 3 of the Health and Safety at Work etc Act 1974 (c.37) shall require the consent of a law officer and the Charity Commission and must satisfy the public benefit test.
(8) A law officer has the power to stop the prosecution, under this Act or the Health and Safety at Work etc Act 1974, of a trustee of an unincorporated charitable trust if it is in the public interest to do so.’.
No. 122, in clause 38, page 38, line 21, at end insert—
‘73F Court jurisdiction
The court shall have parallel jurisdiction with the Commission under section 73D in respect of the relief of charity trustees of Charitable Incorporated Organisations.’.

Andrew Turner: Amendments Nos. 28 and 122 might simply arise from further misapprehension as to the position of a charitable incorporated organisation. New section 73D does not appear to provide for a trustee or an auditor of a charitable incorporated organisation to be relieved from liability—in other words, to be insured—which I believe is the purpose of the clause. That is the purpose of amendment no. 28.
Amendment No. 38 goes in the same direction. The Charity Law Association has said that:
“the Charity Commission has power to relieve charity trustees and auditors”—
of charitable incorporated organisations—
“but the Court power has not been extended to allow for the relief by the Court of charity trustees of a Charitable Incorporated Organisation.”
In contrast, the court has already power to relieve trustees and company directors of corporate charities under the Trustee Act 1925 and the Companies Act 1985.

Martin Horwood: I am impressed by the hon. Member for Isle of Wight’s search for loopholes in the legislation, and I am quite impressed that the Government are still finding one or two typos in the legislation, despite 70 hours of parliamentary scrutiny, and scrutiny by some of the most eminent charity lawyers in the land. One of the hon. Gentleman’s two amendments may deal with a loophole, but not amendment No. 28. I cannot understand why the additional power is needed for charitable incorporated organisations, as all charitable incorporated organisations are charities. By definition, therefore, the powers set out in new section 73D of the Charities Act 1993 will also apply to charity incorporated organisations, and they will not have different books to be audited. As far as I can tell, amendment No. 28 is unnecessary, but I look forward to the Minister’s comments on it.
The hon. Member for Isle of Wight may well have found a loophole with amendment No. 122. I look forward to the Minister’s comments on it, because at the moment the commission seems to be the sole holder of the power to relieve trustees and auditors from breach of trust or duty on the part of CIOs. The courts may well have been missed out of that process. I view that amendment sympathetically.

Peter Bottomley: I shall speak to amendment No. 132. Clause 38 is about the power of the commission “to relieve trustees, auditors etc. from liability for breach of trust or duty”. It says:
“After section 73C of the 1993 Act (inserted by section 37 above) insert—
73D Power to relieve trustees, auditors etc. from liability for breach of trust or duty”
I do not expect the Minister to be able to give a detailed response, and it would not necessarily be proper for him to do so, but it is proper for me to raise these issues in Committee and to expect to a response, in time, from Government. “Government” includes Law Officers, the Department for Work and Pensions, which is responsible for the Health and Safety at Work etc. Act 1974, and the Minister’s Department, which has responsibility for charities.
My concern is relatively narrow; it is about trustees of unincorporated charities. If I described a situation in less detail than I might, it is because I am describing circumstances in which it is probable that there will be a prosecution. There is no prosecution at the moment, so I am within parliamentary conventions, but I do not want to go so far as to prejudice in any sense what might properly follow. Also, if I may interrupt myself, when I was Minister in the Department of Employment—with responsibility for legislation on health and safety at work and for the Health and Safety Commission, which supervises the Health and Safety Executive—almost my first responsibility was to go to a residential property in Putney that was the site of a gas explosion, in which people had died. When people ask me whether I am aware of what happens when unauthorised work or incompetent work takes place in relation to gas, my answer is yes, I do. I met the survivors and relatives of those who died.
If there has been an apparent breach of health and safety regulations, the Health and Safety Executive has various responsibilities. The people who do not live up to their responsibilities are liable to prosecution. It is quite possible that an incorporated body would be liable to prosecution, too, in certain circumstances. The Health and Safety Executive is open about its procedures and codes, and I pay tribute to it for that. In a letter of 10 July to those of us who do some research on the subject, Geoffrey Podger, the chief executive, lays out what is available—and it is well known, in any case—so I pay tribute to the HSE for that.
It is open to the Health and Safety Executive—it may, in a sense, be its responsibility—to consider prosecuting not only the workers and those who supervise them, but the body that is in effect the employer. Were a charity to be incorporated, individual trustees would not be open to individual prosecution unless they had done something so negligent or so deliberate that they opened themselves up to that possibility. Normally, it would be an incorporated body that would be exposed to the risk. There are a large number of unincorporated trusts around the country. Many of those trustees would probably understand that they could be regarded as employers. They might think that they have a chief executive and that the chief executive is the person who provides the employment role, but in fact the trustees do. If the charity is incorporated, they are exposed to risk.
That is why I think that amendment No. 132, having two points, properly comes under clause 38. The first provision that it would insert is:
“(7) Any prosecution of a trustee of an unincorporated charitable trust under section 3 of the Health and Safety at Work etc Act 1974 (c.37) shall require the consent of a law officer and the Charity Commission and must satisfy the public benefit test.”
Mr. Podger helpfully points out that the Attorney-General would have the power to discontinue an action by directing that a nolle prosequi be entered
“in any proceedings upon indictment at any time after the bill of indictment is signed and before judgment but not before the bill of indictment has been preferred. The effect is to put an end to the prosecution but it does not equate to a discharge or an acquittal and the accused can still be re-indicted.”
He advises me by extension that the use of the power is rare and that it is up to me if I want to pursue the matter with the Attorney-General.
Graham Zellick, former vice-chancellor of the university of London, made a similar point in a letter to a law officer, saying that a prosecution by the Health and Safety Executive is not currently a matter for the Attorney-General but deserves consideration in the future. The Attorney-General has power to halt prosecutions, and the particular matter that I am concerned about has been drawn to his attention.
Graham Zellick and I are trustees of a trust that had almshouses. With the Charity Commission’s permission, we sold the almshouses and put the money into another charity, and homes are now provided to twice as many people. The events that took place did not take place in one of the homes that we as trustees had effectively helped to fund.
I turn to the Charity Commission’s leaflet “Responsibilities of Charity Trustees: A Summary”. I emphasise that it is a summary, and so would the Charity Commission if it had the chance. The leaflet, CC3(a), is dated January 2002, and says:
“If your charity needs to employ staff, you should give each employee a proper contract of employment and a written job description making clear the extent of his or her authority to act on your behalf.”
The charities with which I am mainly involved—those associated with the drapers’ livery company—go through a risk assessment. Each year, we review our responsibilities to see whether any changes are necessary with the help of our staff. One of the issues with almshouses is breach of regulations. Under “Almshouses: Health and Safety” in the risk assessment, the consequences of failure to comply with legislation are a risk of
“Death or permanent disability, significant harm or lasting effects”
and could involve
“Moderate to severe injury to individuals”
or
“Financial penalties”.
Then it lists actions and controls currently in place.
I am not one of the trustees involved in the incident about which I shall not go into great detail to put it in a roundabout way, but I could have been. In some sense, perhaps I should have been. I believe that if trustees openly and explicitly approve health and safety procedures that include, for example, giving the instruction that any gas work be done by a Corgi-registered gas fitter, reasonably practical measures have been taken. If it then turns out that work within the organisation is done by someone who is not a Corgi-registered gas fitter, the only way that the trustees will know that is if they are actually present to supervise the work or when an employee gives an instruction to someone not qualified to carry it out. I do not believe that that falls within what is reasonably practical.
I am not asking the Minister to respond to that, but I hope that what I have said will be shared, if necessary by a case conference, with the Attorney-General, a Minister responsible for charities, a Minister from the Department for Work and Pensions, someone from the Health and Safety Executive and, I hope, someone from the Health and Safety Commission as well. In my view, if a charity explicitly approves a method of working that is required by law and safe and it then does not happen, the fact that there are unincorporated trustees should not make it open to prosecution unless there is a special reason.
I could read out the whole of Geoffrey Podger’s helpful letter, and there is other correspondence but I do not think that the Committee needs to be troubled with it. However, I will make the information available to anyone who is interested in it. I hope that, if I withdraw the amendment, which I think it would be proper for me to do, perhaps we could go a stage further on Report and get a co-ordinated Government view on the issues that I have been raising.

Helen Goodman: I understand and am sympathetic to the hon. Gentleman’s argument, but could he tease out for us why this case is different from cases involving corporate manslaughter?

Peter Bottomley: The police have decided that there is not a case for manslaughter, so there is no question of corporate manslaughter. It is not a case of manslaughter, whether by a corporate or unincorporated body—that is not in the field. There is no question of special treatment for unincorporated trustees, as it has been decided that there can be no prosecution for manslaughter. I hope that that answers the hon. Lady’s question.
The second part of my amendment is that the Law Officers should have the power under the 1993 Act or the Health and Safety at Work etc. Act 1974 to stop the prosecution of a trustee of an unincorporated charitable trust if it is in the public interest to do so. I have no doubt that every unincorporated trust in the country will be tempted to turn itself into an incorporated trust as more publicity becomes available on the issue that I have raised. I do not know how many of them there are, but the Minister may know. Perhaps when we return in the autumn, we can have a discussion about that.
It may be that charitable trusts would all be wise to incorporate, but it seems that there must be a shorter way of ensuring that justice is available on behalf of society and the victims—there certainly have been victims. It should be open to the Health and Safety Executive to make proper decisions on prosecutions. I am not in any sense suggesting that its approach is improper—rather the reverse. I recognise its validity, which is open and clear, but it is not just I as a Member of Parliament or as a trustee but Parliament and the Government as a whole who must ensure that potential injustice is avoided.

Martin Horwood: I am sympathetic to what the hon. Member for Worthing, West (Peter Bottomley) said, and I hesitate to question his judgment in an area in which he is obviously expert and experienced. Of course, he is right that there are many unincorporated trusts and that they are an important part of the voluntary and charitable sector—a sector within a sector. Indeed, I can think of a good example in my constituency. The Charles Irving Charitable Trust celebrates the flamboyant and liberal life of Charles Irving, a predecessor as MP for Cheltenham. The trustees of that body do nothing more risky than meet to dispose of the moneys in its bank account.
It seems a strange response to the genuine problems that the hon. Gentleman identified to introduce a loophole in the law that will then apply to all unincorporated charitable trusts whether or not they have a serious problem of risk. I cannot quite work out why he believes that CIO status is not sufficient for the unincorporated trusts that he described, why they should be so afraid of incorporating—in a sense, the purpose of establishing the new status is to provide a less onerous form of incorporation—or whether the current liability that he describes is such a deterrent to forming or running unincorporated trusts, as there are many vibrant unincorporated trusts today.
I would have thought that a charity that owns almshouses or other physical property, and which would obviously have a higher level of risk, probably should be a limited liability company or a CIO. In effect, what the hon. Gentleman is doing through his amendment is advising them not to incorporate and then introducing a complicated exemption for them in law. That is not in the spirit of the Bill, which is trying to move towards more transparency and more simplicity. I would welcome the Minister’s thoughts, as I might be misreading the situation unfairly.

Peter Bottomley: I am not suggesting anything other than if the prosecution of an unincorporated charitable trust under health and safety provisions is being contemplated, it should require the consent of a Law Officer and the Charity Commission and must satisfy the public benefit test. It is not a loophole. If the Charity Commission, the Law Officer and the public benefit test were satisfied, the prosecution would go ahead. Secondly, the hon. Gentleman asked whether it would make sense for people to be incorporated. The answer is clearly yes.

Martin Horwood: If the hon. Gentleman is right that in such circumstances it would be sensible for those companies to be incorporated, I am still not quite sure why the amendment is absolutely necessary. I take his word that he is absolutely sincere in thinking that it is and look forward to hearing the Minister’s comments.

Edward Miliband: Let me deal first with amendments Nos. 28 and 122, and then I shall come to the amendment tabled by the hon. Member for Worthing, West. Full marks to the hon. Member for Isle of Wight in one sense, and the hon. Member for Cheltenham in another.
Amendment No. 28 is unnecessary because the provision already exists. CIOs will be charities and therefore the trustees and auditors are already included in the power of the commission to relieve from liability for breach of trust or duty under clause 38. However, as spotted by the hon. Member for Cheltenham, amendment No. 122, which was tabled by the hon. Member for Isle of Wight, identifies a gap in the legislation even at this late stage. We shall come forward on Report to remedy that gap. I am grateful to the hon. Gentleman for tabling the amendment, because he has drawn our attention to an important issue.
I shall now deal with amendment No. 132. Obviously, I shall start by saying that I am unable to comment on any specific case, and I know that the hon. Member for Worthing, West would not expect me to. My comments will be a little more general. As a relatively junior Member of the House, I thought that the hon. Gentleman spoke incredibly passionately and eloquently about the subject of the amendment.
I shall take the matter away, think further about it and talk to colleagues in government. The material part of the hon. Gentleman’s amendment is subsection (7) rather than subsection (8). As he says, the little-known—at least to me—procedure of nolle prosequi allows the Law Officer to stop proceedings on indictment. A public interest test is at least implicit, if not explicit, in that.
We should take on board the points made by the hon. Member for Cheltenham about subsection (7), as the new form of CIO is designed precisely to provide limited liability and those other aspects that are currently available only in company law. Nevertheless, the hon. Member for Worthing, West spoke eloquently about some of the risks facing trustees of unincorporated trusts. The best I can do is, as he says, not give a specific answer on the spot. I think that he has had a response from the Charity Commission, and that at least shows the seriousness with which it is taking the issue and contains specific responses. I shall take the matter away and communicate further with him.

Peter Bottomley: I am grateful to the Minister and to the hon. Member for Cheltenham. I want to correct something that I said that was wrong. It was not the police who decided not to pursue manslaughter charges but the Crown Prosecution Service. I want to correct that.
The Minister rightly reminded me of the helpful letter from Andrew Hind, chief executive of the Charity Commission. I do not want to give an unbalanced impression of that letter, but it is worth putting one sentence on the record. He states:
“We do share your concern that facing liabilities such as this may deter people from becoming trustees of charities that run undertakings such as the Whiteley Homes Trust.”
I should be interested to know whether the charity commissioners, when reviewing their own health and safety at work responsibilities and risk assessments, include as explicitly as the trustees of the Whiteley Homes Trust did a requirement that gas works should be done by CORGI-registered fitters. I should be interested to know whether the management board of the Minister’s Department or that of the Department for Work and Pensions, which is responsible for the Health and Safety Commission, have done a risk assessment that includes a statement that gas works should be done by CORGI-registered fitters. I should also be interested to know what steps have been taken—or what reasonably practicable steps will now be taken—to ensure that those measures and agreements are undertaken as they should be. I shall not press the amendment.

Edward Miliband: I thank the hon. Gentleman for his remarks, although I do not have specific responses on the procedures that he raised.

Andrew Turner: I welcome the words of the hon. Member for Cheltenham on amendment No. 122. He quite rightly said that amendment No. 28 is unnecessary, but I am grateful for the Minister’s words on that amendment and for his award of full marks, which should go to the CLA—which I always think of as the Country Land and Business Association, rather than the Charity Law Association, with which I am sure hon. Members are familiar, but there we are.

Alun Michael: It is interesting to note that the pervasive use of acronyms means that the Country Land and Business Association still calls itself the CLA, even though it is has inserted the word “Business” in its title.

Andrew Turner: Absolutely—some of us also have difficulties with CSAs, which are variously the Child Support Agency and children’s services authorities.
My hon. Friend the Member for Worthing, West certainly has a point. I look forward with interest to the response that the Minister will bring forward at a later stage.

Peter Bottomley: The chief executive of the Health and Safety Executive rightly said in the letter that decisions had to be taken without regard to political pressure. I hope that what I have said will be not be regarded as political pressure, but as a search for what is right.

Andrew Turner: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 38 ordered to stand part of the Bill.

Clause 39 ordered to stand part of the Bill.

Clause 40

Power to transfer all property

Andrew Turner: I beg to move amendment No. 40, in clause 40, page 40, line 19, leave out ‘(or any of the purposes)’.
This is really quite a simple amendment, which invites the Minister to say why he is happy that a charity that has, say, four purposes should be permitted to transfer its property to a charity that might have only one of those four purposes. In the general interests of ensuring that the donor’s wishes are applied where reasonably practicable and where there is nothing to suggest that any of the four purposes are not practicable, it is odd that proposed new section 74(4)(b) of the 1993 Act should say
“or any of the purposes”.
I propose the deletion of those words.

Martin Horwood: The hon. Gentleman may have slightly misinterpreted the purpose of the words
“or any of the purposes”.
By my reading, the purpose of those words is to allow, for example, the transfer of property from a charity with a narrow purpose to a much larger charity with a number of purposes, one of which might be applicable to the charitable purpose for which the property was given or is owned. However, more than one of its purposes might be applicable. The clause introduces an entirely sensible flexibility into the process, so I oppose the amendment.

Edward Miliband: I am grateful to the hon. Member for Isle of Wight for tabling his amendment and I shall try as best I can to explain the clause—although, as a health warning, I should say that it is not easy to explain.
My key response is to suggest that new section 74A of the 1993 Act must be taken with new section 74B. In other words, for the property to be transferred, the charity trustees of the transferor charity must be satisfied that that would further the purposes for which the property is held. In other words, the trustees must believe that the transfer will further and transfer the purposes for which the gift or the assets were originally put.
I can best explain the effect of the amendment in the following way. Suppose, for the sake of argument, a charity had purposes A, B and C and thought about transferring property to one that had purposes B, D and F. Under the clause as it stands, the first charity could decide to transfer the property or asset to the second charity because it had purpose B. The second charity would not share all the first charity’s purposes, but the two would have a purpose in common.
If the amendment were made, the transfer would not be possible because the purposes of the charity to which transfer was to take place would not be substantially similar to the purposes of the transferring charity or any of the purposes, because purposes B, D and F of the second charity would not be the same as A, B and C, or as A or B or C. That explanation is incredibly convoluted, but it is the best that I can do. I give way to the hon. Member for Cheltenham, who I hope will simplify the explanation.

Andrew Turner: I am impressed by the Minister’s attempt at numerology. However, would a concrete example be a charity established for the benefit of elderly people in the UK that was trying to transfer to, for instance, Help the Aged, which is established for the benefit of elderly people in the UK and overseas? One of the purposes would be applicable, but not both. Flexibility on the number of purposes would be relevant in such a case.

Edward Miliband: Brilliant—I give the hon. Gentleman full marks for making the point much better than I could have done. On that basis, I hope that the hon. Member for Isle of Wight will withdraw his amendment.

Andrew Turner: I am certainly intrigued. The point made by the hon. Member for Cheltenham was exactly the same as the one he made earlier, but it was not the same as the Minister’s point. I think that the Minister said that if a charity was established for the relief of poverty among elderly people in Hampshire, the Isle of Wight and Sussex, it would be fine to transfer the property to a charity whose purposes were to relieve poverty among elderly people in Hampshire, Surrey and Kent. The Minister accepts that. If the Minister now says that the hon. Member for Cheltenham was right and he was wrong, I shall be prepared to withdraw my amendment.
Edward Milibandindicated dissent.

Andrew Turner: The Minister is shaking his head, so I do not think that he is saying that.

Edward Miliband: Now I am going to cause confusion by saying that how the hon. Gentleman just put it is correct. Now that I think about it, the problem with the example given by the hon. Member for Cheltenham is that the whole purpose of his first charity was subsumed in part of the purposes of his second, so it did not accord with my example. However, the example given by the hon. Member for Isle of Wight is consistent with mine.

Andrew Turner: I am grateful for that. In that case, I am happy about the elderly people in the Isle of Wight, but under the scenario that I have sketched out, my hon. Friends who represent Hampshire—and I have forgotten the name of the other place—would not be happy because their elderly people would be deprived of the charity’s benefits.
In my example, the charity’s purposes are three-fold, that is, it covers Hampshire, the Isle of Wight and Sussex. Under sub-paragraph (4)(b) any of those purposes will do—the Isle of Wight is in there, so stuff those in Hampshire and Sussex. If that is what the Government mean—but I am prepared to give way to the hon. Member for Cheltenham who has no interest in this.

Martin Horwood: The Minister was correct in pointing out the flaw in my earlier, perhaps simplistic, example. In the hon. Gentleman’s example, if the property was in the Isle of Wight and had been given by the donor for the benefit of the relief of poverty in the Isle of Wight, it would happily transfer under the clause and have difficulty transferring if the amendment were made.

Andrew Turner: It would, but that does not meet the requirements set out in sub-paragraph (4)(a), which states that it must be
“expedient in the interests of furthering the purposes for which the property is held”
to transfer it to be “any of the purposes” of the transferor charity.
I can only repeat the example. Let us say that the property is money rather than real property. It is held for the benefit of pensioners in those three counties and is transferred to a charity that only has the interests of pensioners in one of those counties. The Isle of Wight Society for the Blind is a good example of a charity to which to transfer their property. The benefit is being reduced by two-thirds—rather more given the relative populations of the three counties. Two-thirds of the prospective beneficiaries are cut off from benefit.

Martin Horwood: I am sorry to be picky, but surely that would fail test A, so it would not actually apply?

Andrew Turner: I accept that would fail test A. In that case, I still do not understand why it is possible for there to be one purpose in common. If the hon. Member for Cheltenham’s thesis is right, one purpose is okay. However, if the Minister’s thesis is right, then one purpose is not okay.

Edward Miliband: This is a shadows and fog debate. We should step outside of the ivory tower for one minute. There is a context to the provision. It is about charities whose gross income in the last financial year did not exceed £10,000. Transfer requires a two-thirds vote of the trustees and it has to further the purposes for which the property is held by the transferor charity.
The hon. Member for Isle of Wight is incredibly ingenious, as he has proved in this Committee, and he has managed to think of an example. However, I do not quite see why anyone would set up a charity for the three purposes that he described. If they did, why would they want to “stuff”—as he so eloquently put it—the people of Hampshire by transferring the money elsewhere?
I am all in favour of intellectual and abstract debate. However, on this occasion, I think that the clause is fine. We can trust the trustees of those small charities to make the right decisions and I suggest that we move on.

Andrew Turner: Since I am in a friendly mood and largely trust the trustees of single charities, I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 40 ordered to stand part of the Bill.

Clause 41

Power to replace purposes

Andrew Turner: I beg to move amendment No. 41, page 44, line 36, at end insert—
‘(8A) Where the rules of the charity provide that its members have the power to vote on amendments to its purposes—
(a) a period of notice of 28 days, or the period set out in the rules of the charity, whichever is greater, shall be given to all members of such a resolution; and
(b) this section shall be construed as if “members” were substituted for “charity trustees” in subsections (1) to (8).’.

Joan Humble: With this it will be convenient to discuss the following amendments: No. 125, in clause 42, page 45, line 14, at end insert
‘or,
‘(c) relating to the execution of the trusts,’.
No. 42, in clause 42, page 45, line 20, after ‘body’, insert
‘, of which a period of notice of 28 days or the period set out in the rules of the charity whichever is greater has been given,’.
No. 102, in clause 42, page 45, line 23, leave out
‘and without any expression of dissent’
and insert
‘but where consensus has been reached’.
No. 43, in clause 42, page 45, line 24, at end insert
‘or
(c) in accordance with the procedures of the charity, whichever is more onerous.’.
No. 126, in clause 42, page 45, line 35, at end insert
‘provided that the date specified in the resolution under subsection (2) cannot be earlier than the date of that resolution.’.

Andrew Turner: Amendments Nos. 41, 42 and 43, taken together, would mean that the period required for a charity to change its rules was the period set out in the Bill or the period set out in the rules of the charity, whichever was the greater. That is for the avoidance of doubt. Amendment No 126 to clause 42 specifies that that action cannot be backdated. We will shortly find out whether that is part of general charity law.
Amendment No. 125 to clause 42 is another of those for which I am indebted to the Charity Law Association, which tells me that it assumes that the intention behind clause 42 is to allow unincorporated charities to change anything in their governing documents other than those things that would affect the way in which the charity deals with its property. I am told that that more or less mirrors the power of amendment enjoyed by charitable companies.
The association welcomes that aim, but does not consider that the current wording offers such a broad power. It has been suggested that the wording allows charities to change pretty much anything, because the word “trusts” is as defined in the Charities Act 1993. Section 97 of that Act states that
“trusts” in relation to a charity, means the provisions establishing it as a charity and regulating its purposes and administration, whether those provisions take effect by way of trust or not”.
It goes on to say that the definition is broad enough to cover all aspects of a charity’s governing document, but that proposed new section 74D does not apply to all a charity’s trusts.
Subsection 2(a) and (b) of the proposed section 74D restrict the application of the section in such a way that it will not apply to administrative provisions that are not connected either to powers exercisable by the charity’s trustees or procedures to be followed. For example, it will not allow trustees to change provisions on the minimum number of trustees. Arguably, it would not allow them to change provisions about the quorum for trustee meetings, as it is unclear whether that falls within the term “procedure”. The provision would add a new subsection (3), applying to all provisions relating to the execution of the trusts. This is sufficient to widen the power to cover areas missed by the existing wording without enabling trustees to make changes to the way the charity can use its property.

Martin Horwood: Amendment No. 102 would amend proposed new section 74D(4)(b) of the 1993 Act. At present, the new subsection (4) provides that
“Any resolution of the charity trustees under subsection (2) must be approved by a further resolution which is passed at a general meeting of the body...by a decision taken without a vote and without any expression of dissent.”
That is an unusually high test of consent. A number of examples spring to mind when that might be difficult to achieve. A Quaker meeting is an obvious one. Another is when there has been debate and discussion, and dissent, but a consensus is reached with the resolution not being put to a vote. In that context, I shall not press the amendment to a Division, thereby illustrating that it is possible to have debate and dissent but to achieve a resolution that is perfectly satisfactory to all concerned. It seems like a sensible, almost drafting amendment that would remove a strangely strict test of consent from subsection (4)(b).
I should be interested to hear the Parliamentary Secretary’s response to many of the amendments tabled by the hon. Member for Isle of Wight. I am sympathetic to amendment No. 41 because the trustees of a charity have a drastic power. We are discussing a charity that holds no designated land. It is neither a company nor an incorporated body and its gross income in its past financial year was less than £10,000. In effect, therefore, the charity trustees may resolve to replace any or all of the purposes of the charity with other purposes. That is a drastic step and, even for a small charity, it is important for safeguards to be in place. Amendment No. 41 would provide a safeguard for the notification of members within the minimum period of 28 days. That is sensible and it would make a good improvement to the clause.
Amendment No. 125 would add the execution of the trusts to the modifiable powers of an unincorporated charity. I shall not pass judgment on that, but will await the Parliamentary Secretary’s remarks with interest. Amendment No. 42 also seems sensible. It would ensure that all members have been notified of the meeting at least 28 days in advance. It is consistent with the other amendments. I also support it.

Peter Bottomley: The Minister will note that, under amendment No. 42 to which the hon. Gentleman just referred, mention is again made of the word “body”. I should be glad to receive a response about that.

Edward Miliband: Let me start by answering the question about the word “body”. A “body” is distinct from a person and could either be a corporate body or an unincorporated body.

Peter Bottomley: Will the Minister care at some stage to share with us how it differs from institution?

Edward Miliband: I will definitely at a later date.
Let me turn now to the amendments, starting with Nos. 41, 42 and 102. Amendment No. 41 tabled by the hon. Member for Isle of Wight would place a decision about replacing any of the charities’ purposes on the membership of the charity, if it were a charity with membership. I am not sure that that is necessary. In fact, it is not. The duty of the charity and the responsibility for its administration rests with the trustees. It should be their decision and, at least, two thirds of the trustees must vote for a resolution. Secondly, the trustees must satisfy themselves that it is in the interests of the charity to proceed with such a resolution. In any case, the two-thirds majority reflects the 1993 Act. I do not believe that it is for us in the House to say to charities throughout the country that are, at present, governed by their trustees that it is now for members to make the decision. That would be a substantial change. It would be an imposition from the House on those charities, whatever the nature of their procedures, that the membership should decide.

Martin Horwood: I think that the Parliamentary Secretary is making quite a serious error. If I were mischievous, I could say that a new Labour Minister might be forgiven for misunderstanding the nature of democratic membership organisations. [Interruption.] If the hon. Member for High Peak (Tom Levitt) and others are whistling through their teeth, perhaps they may care to watch out for future amendments to the Labour party’s constitution.
The governing instruments of a charity are generally the memorandum and articles of association, but they do not always give exclusive power to the trustees to run the charity as they wish. In a membership organisation, those documents may well give sovereign power to the membership that may comprise people who elect the trustees. That does not take away the trustees’ responsibilities, but it does give, in some sense, sovereign power to the membership. For a democratic membership organisation, this seems a perfectly reasonable amendment.

Tom Levitt: If there were a legal challenge to a decision taken by a body where members had collectively had the power that the hon. Gentleman is describing, who would be responsible for defending that legal challenge? [Interruption.] Was I intervening on an intervention? I beg your pardon, Mrs. Humble.

Joan Humble: Order. The Minister had the floor and the hon. Member for Cheltenham was intervening on the Minister, so the Minister will respond to the newer intervention from the hon. Member for High Peak (Tom Levitt).

Edward Miliband: I am grateful to you, Mrs. Humble. Perhaps my hon. Friend the Member for High Peak would like to rephrase his intervention to me.

Tom Levitt: Given the scenario that the hon. Member for Cheltenham describes, if a membership organisation took a decision that was challenged legally, it would always be the trustees or the directors who were responsible for defending that challenge, not the membership as a whole. Is that not correct?

Edward Miliband: That is certainly my understanding. I know that the hon. Member for Cheltenham is a great expert, but I just point out, by the way, that Liberal Democrats should be careful what they say about membership organisations. I believe that they did not know the addresses of any of their members when their election took place. Anyway, members almost never have voting rights over the matters covered by proposed new section 74D(2). Members vote to elect trustees and for similar purposes, so this does not usurp membership rights. However, if the hon. Gentleman has information that contradicts that, I will happily give way to him.

Martin Horwood: I was not suggesting that anything in the constitution of a membership organisation usurps the rights of trustees. Clearly, that is not so.
If I may answer the intervention from the hon. Member for High Peak, of course a resolution by the membership binding the trustees has to be in order; it has to be within the bounds of charity law itself. Therefore, I suppose that it would be the legal officer—the company secretary or the CIO secretary—who would be responsible for defending such a resolution in the case of it being challenged. However, the purpose of the amendment is not to usurp the rights of trustees. It seems to me that the purpose is merely to insert a provision that ensures that the membership is consulted.

Edward Miliband: I do not think that the provision is about the membership being consulted. The amendment states:
“Where the rules of the charity provide that its members have the power to vote on amendments to its purposes...this section shall be construed as if ‘members’ were substituted for ‘charity trustees’ in subsections (1) to (8).”
If I understand the amendment correctly, the term “members” would be substituted for “charity trustees” throughout. I hope that that explanation answers the point.

Andrew Turner: I think that both the hon. Member for Cheltenham and the Minister have misunderstood my amendment, possibly due to it not being perfectly drafted. It states:
“Where the rules of the charity provide that its members have the power”.
Therefore, there is no intention to usurp the power of trustees in that respect.
We must always remember that there are two kinds of member. There are membership organisations, which may be unincorporated and which have members, and the rules may provide that those members have a right to vote. There are also incorporated organisations, of which the directors are members. There may be as few as two. However, in either circumstance, it does not seem unreasonable that where members have the power to vote, they should be provided with the power to vote, and we are just giving them time to vote in our proposed new subsection (8A)(a). I forget exactly what the purpose of our proposed new subsection (8A)(b) was, but it was not intended to usurp the power of charity trustees. It may well be that my amendment is defective in that respect and I will have to think about it a bit more before I wind up on this group.

Edward Miliband: The amendment is defective, I am sorry to say, but let me move on. Amendment No. 42 also specifies a minimum period of 28 days for unincorporated charities to provide notice of a general meeting at which a resolution modifying the powers or procedures of the charity is to be considered. Again, however, it is not for us in this House to impose on organisations the notice period for a general meeting. The commission’s model governing documents for unincorporated associations suggest a notice period of at least 14 days to members and trustees, unless all agree to a shorter notice period. However, the period may vary from one organisation to the next, so, in the interests of flexibility, I am not persuaded by amendment No. 42.
Let me turn to amendment No. 102, which stands in the name of the hon. Member for Cheltenham. We are all alive to the concerns that the Religious Society of Friends has expressed in relation to the clause—indeed, it recently sent me a letter on that very point. However, its concerns are misplaced, and I shall try to explain why. As drafted, clause 42 allows for a resolution to be approved by a decision taken at a general meeting without a vote and without any expression of dissent. However, the key point is that clause 42 allows for dissent in the debate, even though it requires a decision without dissent. That is perfectly consistent with the notion of consensus, which the Religious Society of Friends understandably thinks is important.
Proposed new section 74D(4)(b) of the 1993 Act says:
“by a decision taken without a vote and without any expression of dissent.”
I am assured—although I promise to check on this point—that the expression of dissent is taken to mean for the process of voting, not the previous discussion. I hope that hon. Members will accept my assurances on that point.

Peter Bone: If I understand clause 41 correctly, we are talking only about where an organisation’s gross income in the past financial year did not exceed £10,000. The figure of £10,000 recurs throughout the Bill as though it describes a small charity, but it almost seems to have been plucked out of thin air. If in the previous two years a charity had raised £1 million but then stopped fundraising, it would still fall under that category. The issue relates to the earlier question about auditing. Perhaps the Minister could reflect on that point and consider whether £10,000 is a catch-all amount or whether more consideration should be given.

Edward Miliband: The problem is that we have to draw the line somewhere, although I am happy to consider the issue again. No doubt when we consider the threshold in the Bill, that will be raised again, as the hon. Gentleman makes an important point. However, I am aware that time is marching on, so let me make progress.
Amendment No. 43 stands in the name of the hon. Member for Isle of Wight. I confess that we do not totally understand the nature of his amendment, because it is not wholly clear what is meant by “whichever is more onerous”. I do not know whether I missed that in the hon. Gentleman’s remarks, but perhaps he would like to explain it to us.

Andrew Turner: It simply meant that the charity might have already set out procedures that require more than a two-thirds majority or something else, in which case it would seem reasonable for the charity to adhere to those procedures.

Edward Miliband: That might indeed be reasonable, but proposed new sections 74D(4)(a) and 74D(4)(b) of the 1993 Act are relatively onerous procedures as they stand. I am not sure that we necessarily need more onerous procedures than those.

Martin Horwood: If I understand amendment No. 43 correctly, the hon. Member for Isle of Wight is not proposing to make any procedures more onerous than they are already. He is in fact doing the reverse—he is trying to prevent the Bill from making procedures that are less onerous than those that the charity has set itself under its own rules, terms and conditions. However, I am not sure that amendment No. 43 makes that entirely clear, so perhaps the general point could be considered, rather than the hon. Gentleman’s amendment as drafted.

Edward Miliband: I shall endeavour to take the point away and consider it, in order that we can make further progress. Let me now turn to amendments Nos. 125 and 126, on both of which I hope that I can offer satisfactory reassurance.
The Government understand the hon. Gentleman’s wish for trustees to make suitable modifications to the powers and procedures of the charity. He named a couple of specific issues about which he was concerned, and I am assured that those that he named come within subsections (2)(a) and (b) as inserted by clause 42, and that the amendment is therefore unnecessary. I think that the hon. Gentleman was advised on this by the CLA, but I can give that assurance. He raised the issues of changing the quorum level and of changing the number of trustees. I am pretty certain that those are already covered under subsections (2)(a) and (b) too. If they are not, we shall obviously seek to do something about it.
Amendment No. 126 addresses the problem of ensuring that, when trustees have made a resolution, the date on which the resolution takes effect cannot be earlier than the date of the resolution. We agree that that is a necessary condition, but there is a common law rule that new rules of unincorporated associations cannot be made retrospective in the absence of an express power to that effect. We want to check that it is sufficient, however. If it is not, we shall propose an amendment, and I am grateful to the hon. Gentleman for raising the point. With that, I hope that he will withdraw his amendments.

Andrew Turner: With the Minister’s assurances of both kinds—that my amendments are defective, where they are defective, and that they are useful, where they are useful—and with my gratitude that he has indicated he will examine the issues, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 41 ordered to stand part of the Bill.

Joan Humble: May I ask for clarification from Mr. Horwood, who in moving amendment No. 102 said that he might wish to press it?

Martin Horwood: I beg your pardon, Mrs. Humble. That was a rhetorical point.

Clause 42

Power to modify powers or procedures

Question proposed, That the clause stand part of the Bill.

Peter Bottomley: May I use this opportunity to follow what the Minister said about the Society of Friends—the Quakers? He helpfully observed that, in new section 74D(4)(b) as proposed to be inserted in the 1993 Act by section 42, the words
“decision taken without a vote and without any expression of dissent”
are taken to mean that if a body—including the Society of Friends—took a decision after discussion, without a vote and without dissent, that would have the same effect as if the resolution had been passed by two thirds of the members entitled to vote and attending. Will the Minister consider over the summer whether there ought to be a general provision so that, instead of having to put such provisions into all sorts of legislation, there would be a catch-all that would operate in situations that would affect organisations such as the Society of Friends? Alternatively, could he ask the Society of Friends whether there are other provisions—perhaps for incorporated charities rather than unincorporated ones—that it might be helpful to duplicate?

Edward Miliband: I am certainly happy to consider that. However, is the hon. Gentleman saying that we should have a provision in the Bill that would affect other pieces of legislation? Have I understood him correctly?

Peter Bottomley: I am not trying to draft the thing off the top of my head. What I had in mind was to say that in cases where a recognised charity—I use the word “recognised” imprecisely—does not take formal votes, but where there is a requirement for a vote such as the one in the provision that I cited, a decision taken without dissent would be regarded as equivalent.

Edward Miliband: I suspect that that is already the case, but I will check that point.

Question put and agreed to.

Clause 42 ordered to stand part of the Bill.